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Dmd Case Analysis of Making a Decision of Buying a House

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|Course: | Data, Model and Decision |

|Instructor: | Dr. Feng Haolin |

|Homework: |Decision Analysis |

|Name: | Group 1. Li Yuechuan/ Pankaj Malhotra/ Liang Yuan/ Wu Zhuhua/ Tan Jing/ Gu Junling |

|Student ID No.: | |

|Class: |11FB …show more content…

In the case, structuring the problem is as below:
(1) How to make our offer when there is only one bidder and multiple bidder?
(2) What is Decision Node, what is the Event Node?
(3) What is the probability of each event node?
Analyzing the problem is as below:
(1) Evaluate options and find out the best way of offers;
(2) Select the best choice.

Part.3 Decision Tree
[pic]
Chart 1 Decision Tree
First of all, Debbie and George (D&G) have three choices to make offer with $390,000, 400,000 and 405,000 respectively. Take offer $390,000 for example, the probability of acceptance for this offer is 0.3, whereas probability of rejection is 0.7. If it is accepted, the deal is made for $390,000. On the other hand, if it is rejected, D&G will have three alternatives at second stages, which are withdraw offer, remain same offer and increase offer by 5,000 respectively. The probabilities of The EMV of these three choices are 0, 4,000 and 4,500, as calculated in the decision tree. Hence the decision F will take the highest EMV value of 4,500. Afterwards, we summarize decision E and F according to their weight, and get the EMV for event B as 5,550.
Likewise, we can get EMV of event B and C as 5,300 and 3,800 respectively.
Part.4 Sensitivity Analysis,
From the decision tree above, the main data include two parts, the price and the percentage of acceptance, so the basic calculation is as followed:

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